Question

You are comparing two graphs, each of which plots depreciation expense on its vertical axis (y-axis) and time on its horizontal axis (x-axis). Graph A shows an asset that is depreciated using the declining-balance method, while Graph B shows an asset that is depreciated using straight-line method. Assuming both graphs depict linear relationships, which of the following would you expect to observe?

A. On Graph A, the line plotting depreciation expense will slope down to the right, while on Graph B, the line will be perfectly horizontal.
B. On Graph A, the line plotting depreciation will be perfectly horizontal, while on Graph B, the line will slope down to the right.
C. On Graph A, the line plotting depreciation expense will slope up to the right, while on Graph B, the line will be perfectly vertical.
D. On Graph A, the line plotting depreciation expense will be perfectly vertical, while on Graph B, the line will slope up to the right.

Answer 1

Graph A, which uses the declining-balance method, will display a line sloping downward indicating decreasing depreciation expense over time. Graph B, using the straight-line method, will show a constant horizontal line, reflecting equal depreciation expense each period.

Step-by-step explanation:

When comparing two graphs where the vertical axis represents depreciation expense and the horizontal axis represents time, there are specific patterns to look for based on the method of depreciation used. For an asset depreciated using the declining-balance method, the graph would show a line that slopes downward from left to right. This indicates that the depreciation expense decreases over time, reflecting the accelerated rate of depreciation under this method.

In contrast, for an asset depreciated using the straight-line method, the graph would display a horizontal line. This occurs because the straight-line method allocates an equal amount of depreciation expense over each period, leading to a constant value on the graph year after year.

Therefore, the correct observation is that on Graph A, the line plotting depreciation expense will slope down to the right, reflecting the declining expense each period under the declining-balance method, while on Graph B, the line will be perfectly horizontal, indicating a constant depreciation expense each period under the straight-line method.